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America fears revival may be short-lived
Washington, Aug 25: Fear is creeping into the celebrations over an upswing in the US economy. Recovery signs are abundant, from surging consumer spending to rising factory output and most economists forecast a gradual economic pick-up in the second half of `03 and in `04.
Washington, Aug 25: Fear is creeping into the celebrations over an upswing in the US economy. Recovery signs are abundant, from surging consumer spending to rising factory output and most economists forecast a gradual economic pick-up in the second half of ’03 and in ’04.
Investors, glimpsing better times ahead, sent Wall Street’s blue-chip Dow Jones industrial average up 90.76 points, or 0.97%, to 9,412.45 on Monday, the highest finish in more than a year. But in the shadows, higher oil prices, the still-large portions of industry lying idle, unemployment and rising market interest rates are leading some analysts to squeeze the champagne cork back into the bottle. Past experience of the shocks from the September 11 attacks, a stock market slump and corporate scandals, combined with new risks, have raised questions about the long-term durability of the recovery.
“I don’t think we are yet at the point where we can declare the economic recovery to be self-sustaining,” said Moody’s Investors Service chief US economist John Lonski. “It is premature to state at this time with confidence that the US economy will no longer require additional external assistance from either the Federal Reserve or from fiscal stimulus.”
Oil comprises one of the major risks. Economists at Morgan Stanley raised the forecast for a barrel of Brent North Sea crude oil from $25 to $29 at the end of this year and from an average $24.5 to $27 in ’04. “For the global economy, this should not be a major impediment on the recovery road. However, relatively higher oil prices are likely to limit the strength of the recovery and influence policy-makers,” they said.
The housing market helped power the economy through a tough ’02 and ’03, as people took advantage of lower rates to cut their monthly payments and finance shopping. But the Mortgage Bankers Association of America (MBA) on Monday cut its forecast for new mortgages this year and next, blaming a rapid rise in mortgage interest rates.
“We have been forecasting mortgage interest rates to slowly increase, eventually drying up the refinance market, but the recent upsurge in rates has moved that event forward,” said MBA chief economist, Douglas Duncan. Investors still view corporate debt as more risky than benchmark government bonds, although the difference has narrowed. Bureau Report
“I don’t think we are yet at the point where we can declare the economic recovery to be self-sustaining,” said Moody’s Investors Service chief US economist John Lonski. “It is premature to state at this time with confidence that the US economy will no longer require additional external assistance from either the Federal Reserve or from fiscal stimulus.”
Oil comprises one of the major risks. Economists at Morgan Stanley raised the forecast for a barrel of Brent North Sea crude oil from $25 to $29 at the end of this year and from an average $24.5 to $27 in ’04. “For the global economy, this should not be a major impediment on the recovery road. However, relatively higher oil prices are likely to limit the strength of the recovery and influence policy-makers,” they said.
The housing market helped power the economy through a tough ’02 and ’03, as people took advantage of lower rates to cut their monthly payments and finance shopping. But the Mortgage Bankers Association of America (MBA) on Monday cut its forecast for new mortgages this year and next, blaming a rapid rise in mortgage interest rates.
“We have been forecasting mortgage interest rates to slowly increase, eventually drying up the refinance market, but the recent upsurge in rates has moved that event forward,” said MBA chief economist, Douglas Duncan. Investors still view corporate debt as more risky than benchmark government bonds, although the difference has narrowed. Bureau Report